1975 (5) TMI 8 - HC - Income Tax

Summary

Issues:
Interpretation of whether the salary received by the assessee was the income of the Hindu joint family or his individual income.

Analysis:
The case involved brothers who, along with their father, constituted a Hindu joint family that later converted their business into a partnership firm and then into a private limited company. The brothers and their father were appointed as lifetime directors of the company and received remuneration for extra services rendered. The Income-tax Officer included the salary in the assessment of the joint family, asserting that the shares enabling the directorship were acquired from joint family funds. The Appellate Assistant Commissioner and the Tribunal upheld this decision, emphasizing the direct link between shareholding and remuneration.

Upon a directive from the High Court, the Tribunal was tasked with determining the nature and extent of services rendered by the assessees to the company. The Tribunal found that some general services were provided but did not specify if these services were based on personal qualifications. The Supreme Court precedent in P. N. Krishna Iyer v. Commissioner of Income-tax highlighted that income earned using joint family assets remains family income, even if personal service is involved. Similarly, in Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax, the Court differentiated between income derived from family funds and compensation for personal services.

In the present case, the High Court found that the remuneration was due to the family's shareholding, not the individual qualifications of the assessees, despite their general services to the company. The absence of a service contract and the determination of remuneration by the board of directors, which included the assessees and their father, supported the conclusion that the income was a share of the company's earnings allocated to the family. The Court ruled in favor of the department, holding that the remuneration was rightfully assessed as the income of the Hindu joint family.